Roadmap for Implementation of Renewable Energy Certificate Mechanism for India REPORT-10 (ACTIVITY 2798) Guidelines and Operating Rules for Monitoring Institution(s) SUBMITTED TO Renewable Energy and Energy Efficiency Partnership (REEEP) BY Indian Renewable Energy Development Agency Ltd. ABPS Infrastructure Advisory Private Limited JULY, 2010
Table of Contents 1. Introduction: Monitoring Institutions... 3 2. Central Level Monitoring Institution(s)... 5 2.1. Powers and Functions: Activities to be carried out by Compliance Auditors... 5 2.2. Eligibility Criteria... 5 2.3. Procedure for Appointment of Compliance Auditors... 6 2.4. Associated Cost and Mechanism for Recovery... 7 2.5. Mechanism for Recovery: Determination of Fee and Charges payable by Eligible Entity... 7 3. State Level Monitoring Institution(s)... 12 3.1. Powers and Functions: Activities to be carried out by State Agency... 12 3.2. Role of State Agency for Monitoring RPO Compliance... 13 3.3. Eligibility Criteria... 14 3.4. Organisational Structure for State Agency... 14 3.5. Mechanism for Recovery: Determination of Fee and Charges payable by Stakeholders.. 15
1. Introduction: Monitoring Institutions In order to ensure successful implementation of REC Mechanism, it is essential that the various stakeholders fulfil their responsibilities as envisaged in the regulations notified by the Central Electricity Regulatory Commission (CERC) and the Forum of Regulators (FOR) respectively. It is envisaged that the monitoring of the stakeholders participating in the REC Mechanism shall be conducted at the Central level as well as at the State level. To monitor the compliance with the CERC REC Regulations 1 by the various stakeholders, the CERC has made the provision of appointment of Compliance Auditors. The Compliance Auditors shall inquire into and report on the compliance by the renewable energy generators applying for Registration as Eligible Entity for receiving the Renewable Energy Certificates. On the basis of the report submitted by the Compliance Auditor, the Central Agency may initiate actions to revoke the Registration of the renewable energy generator as Eligible Entity for receiving the Renewable Energy Certificates. Further, at the state level, it shall be the State Agency, designated by the State Electricity Regulatory Commission (SERC) which accredits the renewable energy generation projects and recommends them for Registration with the Central Agency. Only those renewable energy projects/sources which qualify the criteria specified by the Ministry of New and Renewable Energy (MNRE) shall be eligible for participating in the REC Mechanism. The State Agency shall essentially monitor that the renewable energy project which has received the Certificate of Accreditation shall remain in the limits or criteria specified under the CERC REC Regulations. In case the renewable energy project is found not fulfilling such criteria, the State Agency may initiate revoking the accreditation. Further, the regulations 2 issued by the Forum of Regulators mentions that the Renewable Energy Certificate shall be recognised as valid instrument for Obligated Entities such as distribution licensee, open access consumers and captive consumers to fulfil their Renewable Purchase Obligations (RPO) as specified by the concerned SERC. The regulations mentions that the State Agency as may be designated by the concerned SERC shall monitor the RPO compliance of the Obligated Entities and shall submit its report on quarterly basis to the concerned SERC. Therefore, it is envisaged that there shall be state level agencies which shall essentially monitor on a regular basis the renewable energy projects which have received Certificate of Accreditation continue to comply with conditions specified by the SERC/MNRE/Central Agency/State Agency from time to time for participation in the REC Mechanism. 1 Central Electricity Regulatory Commission (Terms and Conditions for Recognition and Issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010 2 Model Regulations for State Electricity Regulatory Commission (Renewable Purchase Obligation and its Compliance) Regulations, 2009 REEEP/JULY2010 Page 3
Further, the state level agencies shall also monitor the RPO compliance of the Obligated Entities and shall report it to the concerned SERC. REEEP/JULY2010 Page 4
2. Central Level Monitoring Institution(s) In order to facilitate the compliance of the regulations notified by the CERC for stakeholders participating in the REC Mechanism, the CERC has made the provisions for appointing Compliance Auditors. The Compliance Auditors shall function in accordance with the CERC REC Regulations and the procedure specified by the Central Agency and approved by the CERC for Implementation of the REC Mechanism. 2.1. Powers and Functions: Activities to be carried out by Compliance Auditors The Compliance Auditors shall be empowered and essentially investigate the compliance of various provisions by the renewable energy generator for participating in the REC Mechanism such as, 1. The Eligible Entity has made wilful and prolonged default in activities required to be carried out by it as per CERC REC Regulations. 2. The Eligible Entity has not complied with certain term/condition of accreditation or registration. 3. The Eligible Entity is using excess fossil fuel than permissible as per Regulations. 4. The Eligible Entity has submitted false information to avail Accreditation/Registration. 5. The Eligible Entity has failed to make deposit or furnish the security or pay fees or other charges, as required by its accreditation or registration. 6. Any other reason The Compliance Auditors based on the aforesaid criteria shall submit its report to the Central Agency. The Central Agency after making an enquiry or on the basis of the report submitted by the Compliance Auditors shall initiate the process for revocation of Registration of the Eligible Entity, if necessary, upon giving due notice and change to the concerned Eligible Entity to present its case. 2.2. Eligibility Criteria The individual persons and/or firm having qualification and experience in the below mentioned areas shall be eligible to function as Compliance Auditor under the CERC REC Regulations, (a) Should possess specialisation in Finance or Accounts or Commerce (b) Qualification and Experience in the field of engineering with specialisation in generation, transmission or distribution of electricity. REEEP/JULY2010 Page 5
(c) Experience that demonstrates an adequate understanding of the electricity sector, institutions including regulatory commissions, utilities, government institutions, state agencies their roles and responsibilities. 2.3. Procedure for Appointment of Compliance Auditors On the basis of the eligibility criteria, the CERC shall appoint persons or firms to undertake functions as Compliance Auditors as per the CERC REC Regulations. The draft procedure may be adopted by the CERC is mentioned below, A. Scope of Work Compliance Auditors shall be engaged for the following purposes, namely: i. providing expert advice on issues specific to the implementation of the REC Mechanism ii. conduct independent and transparent inquiry on compliance of CERC REC Regulations by the person applying for Registration as Eligible Entity and all matters connected thereto iii. submit compliance report to the Central Agency as and when required iv. undertake functions as specified in the CERC REC Regulations and amendment thereof from time to time B. Period of Engagement The Compliance Auditors shall be engaged for the minimum period and in no case engagement of the Compliance Auditors shall exceed a continuous period of three years C. Qualification Criteria The Compliance Auditors shall have following qualification criteria, 1. Have specialisation in Finance or Accounts or Commerce 2. Qualification and Experience in the field of engineering with specialisation in generation, transmission or distribution of electricity. 3. Experience that demonstrates an adequate understanding of the electricity sector, institutions including regulatory commissions, utilities, government institutions, state agencies their roles and responsibilities D. Appointment of Compliance Auditor(s) REEEP/JULY2010 Page 6
The Compliance Auditor(s) shall be appointed with the approval of the Evaluation Committee constituted with the approval of the Chairperson of the CERC. The Evaluation Committee may be headed by the Member appointed by the Chairperson of the CERC and may include Secretary of the CERC, Financial Advisor, an Officer from the CERC having knowledge in the area of work and a senior level Office from the Central Agency. E. Remuneration of the Compliance Auditors The CERC, through Order, may determine the remuneration payable to the Compliance Auditors from time to time. 2.4. Associated Cost and Mechanism for Recovery CERC from time to time shall fix the remuneration and charges payable to the Compliance Auditors and all such amount shall be met out of the funds which the Central Agency may collect from the Eligible Entities. The funds shall be maintained through the collection of fee and charges by the Central Agency from the Eligible Entity for participating in the REC Mechanism. In accordance with the CERC REC Regulations, the fee and charges payable by the Eligible Entities to participate in the REC Mechanism shall include i. One-time Registration fee and charges, ii. Annual fee and charges, iii. Transaction fee and charges for issue of certificate and iv. Charges for dealing in the certificate Accordingly, an analysis has been conducted to assess the likely fee and charges that may be collected from the Eligible Entity which may be further utilised for the purpose of payment of remuneration to the Compliance Auditors, Officers, employees, consultants and representatives engaged to perform the functions under the CERC REC Regulations. 2.5. Mechanism for Recovery: Determination of Fee and Charges payable by Eligible Entity 1.1. The National Action Plan on Climate Change (NAPCC) has envisaged the dynamic minimum renewable purchase specification (DMRPS) to be 5% during FY 2009-10 which shall be increased by 1% every year for subsequent 10 years. In order to meet the target as envisaged by the NAPCC, approximately 4000MW per annum of renewable energy capacity should be installed in consequent years. Keeping the aforesaid fact into consideration three scenarios i.e. optimistic, pessimistic and REEEP/JULY2010 Page 7
realistic scenarios have been analysed by the Commission. Further, while development of new RE projects by developers/lenders/investors may continue to choose time tested preferential tariff route, there would be few developers/investors who could wish to explore market route of REC mechanism. Accordingly, it has been assumed that under initial period of introduction of REC mechanism, approximately 10% of the likely capacity addition under renewable energy segment may participate through REC Mechanism. The table below presents the analysis under the three scenarios, Table 2-1: Summary of Expected Projects Participating in the REC Mechanism Likely RE Capacity Addition in 2010-11 MW 4000 4000 4000 Scenario Optimistic Pessimistic Realistic Likely RE Capacity to Participate in REC % 25% 10% 15% Likely RE Capacity to Participate in REC MW 1000 400 600 Wind Share (70%) MW 700 280 420 Biomass Share (10%) MW 100 40 60 Cogeneration Share (10%) MW 100 40 60 SHP Share (10%) MW 100 40 60 Wind Projects (Project Size 5 MW) No. 140 56 84 Biomass Projects (Project Size 10 MW) No. 10 4 6 Cogeneration Projects (Project Size 15 MW) No. 7 3 4 SHP Projects (Project Size 5 MW) No. 20 8 12 Likely Projects Participating in REC Mechanism No. 177 71 106 Further, the fee and charges should be sufficient enough so that various agencies envisaged for implementation of REC Mechanism may discharge their function in non-discriminatory and transparent manner. The fee and charges payable by the entities should also not discourage them from participating in the REC Mechanism. Further, in order to assess the likely REC available under the three scenarios s discussed above, the Commission has given due consideration to the performance factors and track record for the development of individual renewable energy technology in the country. The table below summarises the likely REC available under the different scenarios, REEEP/JULY2010 Page 8
Table 2-2: Summary of Expected REC Available under different Scenarios Likely Capacity Addition in 2010-11 MW 4000 4000 4000 Scenario Unit Optimistic Pessimistic Realistic Likely Capacity to Participate in REC % 25% 10% 15% Likely REC available under the three scenario Wind Projects (CUF - 23.72%) MWh 1454587 581835 872752 Biomass Projects (PLF - 80%) MWh 700800 280320 420480 Cogeneration Projects (PLF - 52.67%) MWh 461360 184544 276816 SHP Projects (CUF - 41.25%) MWh 361350 144540 216810 Total REC available under different Scenario MWh 2978097 1191239 1786858 The Central Agency shall collect the fee and charges from the Eligible Entity during the Registration and at the time of Issuing the Renewable Energy Certificate. Applicable fee and Charges towards Registration of Eligible Entity and Expected Revenue Realisation It is suggested that during the Registration of Eligible Entity following fee and charges shall be collected by the Central Agency, 1. The application for Registration of RE Generating Company as Eligible Entity shall be accompanied by a non-refundable One- time Application Processing Fees at the rate of Rs.5000/- per application. 2. The RE Generating Company shall pay the One-time Registration Charge at the rate of Rs.1000/- per application once the registration is granted by the Central Agency. 3. The RE Generating Company shall also pay an Annual Charge at the rate of Rs.1000/- per application. The Annual Charges shall be payable by April 10, of each fiscal year or each anniversary date from date of initial registration. 4. The RE Generating Company shall pay charges towards Revalidation/Extension of Validity at the rate of Rs5000/- per application at the time of revalidation/extension of validity of existing registration at the end of five (5) years, or any such period as determined by the REEEP/JULY2010 Page 9
Commission from time to time, from the date of initial registration unless otherwise revoked prior to such validity period. The expected revenue realisation with the aforesaid fee and charges during Registration of Eligible Entity is summarised in the table below, Table 2-3: Summary of Fee and Charges towards Registration and Expected Revenue Realisation Scenario Unit Optimistic Pessimistic Realistic Likely Capacity to Participate in REC % 25% 10% 15% Total No. of Projects Participating in REC Mechanism No. 177 71 106 Processing Fees (One Time) Rs 5000 5000 5000 Registration Charges (One Time) Rs 1000 1000 1000 Annual Charges Rs 1000 1000 1000 Registration Fees Rs 7000 7000 7000 Expected Revenue Realisation Rs Lakh 12.39 4.97 7.42 Applicable fee and charges towards Issuance of Renewable Energy Certificate and Expected Revenue Realisation It is suggested that during the Issuance of Renewable Energy Certificate to the Eligible Entity Rs 10 per Certificate (equivalent to Rs 10 / MWh) shall be collected by the Central Agency. The table below presents the expected revenue realisation during the Issuance of REC. Table 2-4: Summary of Fee and Charges towards Issuance of REC Likely Capacity Addition in 2010-11 MW 4000 4000 4000 Scenario Unit Optimistic Pessimistic Realistic Likely Capacity to Participate in REC % 25% 10% 15% Fees per Certificate Rs 10 10 10 Expected REC Available No. 2978097 1191239 1786858 Expected Realisation Revenue Rs. Lakh 297.81 119.12 178.69 per unit Impact Paisa/kWh 1.00 1.00 1.00 REEEP/JULY2010 Page 10
Summary The aforesaid discussion elaborates the likely fee and charges which shall be finalised by the CERC through a public consultation process. The CERC shall specify the remuneration for the Compliance Auditors after finalisation of the fee and charges collected by the Central Agency by Eligible Entities. REEEP/JULY2010 Page 11
3. State Level Monitoring Institution(s) At the state level, it shall be the State Agencies, designated by the SERC, which essentially monitor the compliance of relevant conditions by stakeholders willing to participate in the REC Mechanism. Further, in order to participate in the REC Mechanism, as a pre condition the renewable energy generating company has to receive the Certificate of Accreditation from the State Agency for its renewable energy projects. It shall be the responsibility of the State Agency to inquire into and monitor that the renewable energy company continue to comply with the provisions of the regulations to participate in the REC Mechanism once it has received the Certificate of Accreditation from the concerned State Agency. Upon giving due opportunity of hearing to the concerned Eligible Entity, the State Agency may initiate process for revocation of the accreditation in case it acknowledges that the renewable energy company is no longer meeting the criteria or not complying with conditions necessary for its continued participation in REC Mechanism. Furthermore, the Obligated Entities are also mandated to fulfil their Renewable Purchase Obligated (RPO) through purchase of the Renewable Energy Certificates. The State Agencies shall also inquire into and monitor fulfilling the RPO by the Obligated Entity. It is suggested that the State Agencies may prepare their report on Compliance of RPO by the Obligated Entities in concerned State and submit the report to the SERC on quarterly basis. Further, the State Agencies may discharge any other functions as may be directed by the State Electricity Regulatory Commissions in order to ensure smooth, trouble-free implementation of REC mechanism within the State. 3.1. Powers and Functions: Activities to be carried out by State Agency The State Agency shall be empowered and shall essentially investigate the compliance of various provisions of REC Regulations by the renewable energy generator and the obligated entities for participating in the REC Mechanism such as, 1. The Applicant has made wilful and prolonged default in activities required to be carried out by it as per CERC REC Regulations. 2. The Applicant has not complied with certain term/condition of accreditation. 3. The Applicant is using excess fossil fuel than permissible as per Regulations. 4. The Applicant has submitted false information to avail Accreditation. 5. The Applicant has failed to make deposit or furnish the security or pay fees or other charges, as required by its accreditation. 6. The Obligated Entity has not fulfilled its RPO in any financial year in spite of the availability of the REC. REEEP/JULY2010 Page 12
7. Any other reason The State Agency shall function in accordance with the directions issued by the concerned SERC and shall act in a manner consistent with the procedures and rules laid by Central Agency for discharge of its functions under the Central Electricity Regulatory Commission (Terms and Conditions for recognition and issue of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010. The State Agency based on the aforesaid criteria shall submit its report on non compliance by the renewable energy generator to the Central Agency or concerned SERC, as the case may be. The Central Agency after making an enquiry or on the basis of the report submitted by the State Agency may ask Compliance Auditors to initiate inquiry and if deems fit may initiate the revocation of Registration of the Eligible Entity. 3.2. Role of State Agency for Monitoring RPO Compliance The State Agency shall be the nodal agency for monitoring the RPO mechanism of the Obligated Entities. As regards RPO fulfilment by the distribution licensees, it is envisaged that they shall furnish the summary statement of energy procured from different renewable energy (RE) sources on monthly basis to State Agency. Further, at the end of each financial year, each distribution licensee shall submit the detailed statement of energy procurement from various renewable energy sources, duly certified by the auditors. Further, it is envisaged that the State Agency / SERCs shall have access to the registry information maintained by the Central Agency in terms of RECs transactions undertaken by various Buyers over the Power Exchange. Based on information maintained by REC Registry, the State Agencies shall compile and submit Report to the SERCs on REC procurement and RPO compliance thereof by various Obligated Entities within the State. For open access users as well as captive users, State Load Despatch Centre (SLDC) shall provide the information related to open access and captive transactions from RE sources to State Agency on monthly basis. The State Agency shall compile the information furnished by different Stakeholders to compute the RPO fulfilment by different stakeholders. The summary statement of RE procurement by different Obligated Entities shall be published by State Agency on quarterly basis on its website. The non-compliance of fulfilment of RPO targets shall be reported by State Agency to the concerned SERC on annual basis. The State Agency shall prepare and submit to the Commission the detailed statement of RPO targets vis-à-vis actual procurement by the different Obligated Entities, and shortfall/surplus thereof, and amount of Enforcement Charges to be levied on different entities, if any. REEEP/JULY2010 Page 13
3.3. Eligibility Criteria It shall be the concerned State Commission which shall designate an agency as State Agency for accreditation and recommending the renewable energy projects for registration and to undertake functions under these Regulations. If the State Commission is satisfied that the State Agency is not able to discharge its functions satisfactorily, it may by general or special order, and by recording reasons in writing, designate any other agency to function as State Agency as it considers appropriate. It is preferred that the State Nodal Agency (SNA) of the concerned State is designated to undertake the functions of the State Agency. Presently, the SNA carry out the procedure for registration of the renewable energy projects which is analogous to the procedure for accreditation of renewable energy projects under the REC Mechanism. Further, the SNA have the capability to carry out the procedure for accreditation and other functions without much capacity building. However, SNA shall be given enough training for building their capacity to undertake the functions as State Agency. 3.4. Organisational Structure for State Agency In order to have smooth monitoring and implementation of RPO, it is preferred that a monitoring committee should be formed to guide/co-ordinate/facilitate State Agency and other stakeholders to perform their respective roles. The State Agency shall consists of following member, (1) Chairperson or Director General (2) Head or General Manager Power Generation (RE) (3) Head or General Manager Research & Development (4) Head or General Manager Administration (5) Head or General Manager Infrastructure Development (6) Head or General Manager Accounts The main objective of the institutional arrangement shall be, a) Provide assistance in development and implementation of Renewable Energy Certificate Market in India. b) Develop and provide platform for better governance c) Bring transparency in operation d) Coordinate and facilitate activities by optimal utilisation of resources REEEP/JULY2010 Page 14
e) Provide platform to identify and resolve concerns of the stakeholders f) Act as an agency to interact with the RE Generators, Obligated Entities, Central Agency, SERC, State Load Despatch Centre, etc. 3.5. Mechanism for Recovery: Determination of Fee and Charges payable by Stakeholders The State Agency shall essentially create fund by undertaking Accreditation of the renewable energy projects. The State Agency shall play key role in the whole cycle. The State Agency shall undertake accreditation of the renewable energy projects and shall recommend for Registration as Eligible Entity to the Central Agency. Further, the State Agency shall also prepare and submit its report to the SERC regarding RPO compliance by the Obligated Entity in their respective State. It is preferred that the State Agency should have enough funds so as to undertake functions independently and in a transparent manner. It is suggested that during the Accreditation of Eligible Entity following fee and charges shall be collected by the State Agency, 1. The application for Accreditation of RE Generation Projects shall be accompanied by a nonrefundable One - time Application Processing Fees at the rate of Rs.15000/- per application. 2. The RE Generating Company shall pay the One-time Accreditation Charge at the rate of Rs.5000/- per application once the Certificate of Accreditation is granted by the State Agency. 3. The RE Generating Company shall also pay an Annual Charge at the rate of Rs.5000/- per application. The Annual Charges shall be payable by April 10, of each fiscal year or each anniversary date from date of initial Accreditation. 4. The RE Generating Company shall pay charges towards Revalidation/Extension of Validity at the rate of Rs15000/- per application at the time of revalidation/extension of validity of existing Accreditation at the end of five (5) years, or any such period as determined by the Commission from time to time, from the date of initial Accreditation unless otherwise revoked prior to such validity period. The expected revenue realisation with the aforesaid fee and charges during Accreditation of the Renewable Energy Generator is summarised in the table below, REEEP/JULY2010 Page 15
Table 3-1: Summary of Fee and Charges towards Accreditation and its per unit Impact Scenario Unit Optimistic Pessimistic Realistic Likely Capacity to Participate in REC % 25% 10% 15% Total No. of Projects Participating in REC Mechanism No. 177 71 106 Processing Fees (One Time) Rs 15000 15000 15000 Accreditation Charges (One Time) Rs 5000 5000 5000 Annual Charges Rs 5000 5000 5000 Accreditation Fees Rs 25000 25000 25000 Expected Revenue Realisation Rs Lakh 44.25 17.75 26.50 Further, during the redemption of the REC it is suggested that the Rs.10 per REC (equivalent to Rs 10 per MWh) shall be payable by the Eligible Entity as well as Obligated Entity, which can be collected by the Power Exchanges facilitating such collective REC transactions on their respective Power Exchanges. The expected revenue realisation under different scenario has been discussed in the table below, Table 3-2: Summary of Fee and Charges towards Redemption of REC Likely Capacity Addition in 2010-11 MW 4000 4000 4000 Scenario Unit Optimistic Pessimistic Realistic Likely Capacity to Participate in REC Fees per Certificate: Eligible Entity Contribution Fees per Certificate: Obligated Entity Contribution % 25% 10% 15% Rs 10 10 10 Rs 10 10 10 Expected REC Available No. 2978097 1191239 1786858 Expected Revenue Realisation Rs. Lakh. 595.62 238.25 357.37 per unit Impact Paisa/kWh 2.00 2.00 2.00 Summary The CERC shall specify the applicable fees and charges for accreditation, registration, issuance and redemption after a due regulatory process of public consultation. The fund created through collection of fee and charges by the entities may be utilised for paying remuneration to the monitoring institutions and may also be utilised for capacity building of the State Agency. REEEP/JULY2010 Page 16